Courts rule government’s pension switch lawful

| December 2, 2011 | 0 Comments
Courts rule government’s pension switch lawful

The High Court has decided that the government’s decision to use the Consumer Prices Index (CPI) to inflation-proof public sector pensions, rather than the traditionally-used Retail Prices Index (RPI), was lawful.

The legal challenge to the change, which came into force in April, was launched by Trade unions who claimed that the change was made purely to help reduce the UK’s budget deficit and was made with any consultation or negotiation.

The High Court’s decision follows yesterday’s national strike when up to two million public sector workers protested over further proposed changes to public sector pensions which would see them having to pay higher contributions and work longer to receive a payout.

It was originally estimated that the move to the CPI would save the government £1.8 billion a year in cash payments by 2015-16.

However, according to figures released by the Office for Budget Responsibility (OBR) at the time of the Autumn Statement, the gap between the CPI and the RPI is expected to widen from 1.2 to 1.4 percentage points a year.

By 2016, the gap could be as high as 1.8 percentage points, with CPI falling to 2 per cent, while RPI is expected to stay higher at 3.8 per cent.

If these figures prove correct the amount the government will save by moving to the CPI measure could be as much as £6 billion.

Analysts have pointed out that while most Government payouts are linked to the CPI, the monies it collects in, such as Student Loan payments, remain linked to the RPI.

In this week’s forecast the OBR increased its estimate for government expenditure on public sector pensions in 2014-15 by £2.8 billion, from the £7.2 billion forecast in March’s budget, to an estimated £10 billion.

The OBR expects gross expenditure to show a steady increase due to rising life expectancy which will change the age profile of pension schemes’ membership.

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